What is TDS?
Tax Deducted at Source (TDS) is a mechanism introduced by the Income Tax Department of India to collect taxes at the source of income. It ensures that taxes are deducted in advance and reduces instances of tax evasion. Under this system, a person (deductor) making a payment to another person (deductee) is required to deduct a certain percentage of tax before making the payment.
Objectives of TDS:
Ensures timely tax collection
Minimizes tax evasion
Steady revenue for the government
Reduces tax burden on taxpayers at year-end
Applicability of TDS and Threshold Limits for Different Sections
The Union Budget 2025 has introduced significant amendments to TDS provisions, increasing certain threshold limits and modifying tax rates.
Latest TDS Rates and Thresholds as per Budget 2025
Section | Nature of Payment | Previous Threshold Limit (₹) | Revised Threshold Limit (₹) (Budget 2025) | TDS Rate |
192 | Salary | Basic exemption limit | No change | As per Income Tax Slab |
192A | Premature withdrawal from EPF | 50,000 | No change | 10% |
193 | Interest on securities | 10,000 | 20,000 | 10% |
194 | Dividend payments | 5,000 | 10,000 | 10% |
194A | Interest (other than securities) | 40,000 (general), 50,000 (senior citizens) | 50,000 (general), 1,00,000 (senior citizens) | 10% |
194B | Lottery winnings | 10,000 (aggregate) | 10,000 (per transaction) | 30% |
194C | Payment to contractors | 30,000 (single) / 1,00,000 (aggregate) | No change | 1% (Ind./HUF), 2% (Others) |
194H | Commission/Brokerage | 15,000 | 20,000 | 5% |
194I | Rent | 2,40,000 | 50,000 per month | 2% (plant/machinery), 10% (land/building) |
194IA | TDS on sale of immovable property | 50,00,000 | No change | 1% (applicable on transactions exceeding ₹50 lakh, deducted by the buyer before payment to the seller) |
194J | Professional/Technical Services | 30,000 | 50,000 | 10% (general), 2% (technical) |
194N | Cash withdrawals | 1 crore (20 lakh for non-filers) | No change | 2% (above ₹1 crore), 5% (for non-filers above ₹20 lakh) |
194O | E-commerce participants | 5,000 | No change | 1% |
195 | Payment to non- residents | No threshold | No change | Rates vary based on DTAA |
TDS for Non-Residents (Section 195)
TDS applies to payments made to non-residents, including payments for interest, royalties, technical services, property transactions, and dividends.
The applicable TDS rate varies based on Double Taxation Avoidance Agreements (DTAA) between India and the recipient’s country.
If the deductee does not provide a PAN, TDS is deducted at the highest applicable rate of 20% or more.
Certain payments, such as capital gains on the sale of property by an NRI, attract TDS at 20% (for long-term capital gains) and 30% (for short-term capital gains).
Important Changes in Budget 2025:
- Increase in TDS threshold for interest, rent, commission, and professional fees
- Stricter compliance for cash transactions (Section 194N)
- Mandatory TDS on cryptocurrency transactions under Section 194S
TDS Returns & Forms
TDS deducted must be reported through quarterly returns. The required forms are:
Form | Purpose | Applicability |
Form 24Q | TDS on Salary | Employers deducting TDS from salaries |
Form 26Q | TDS on Non-Salary Payments | TDS on payments like interest, rent, commission |
Form 27Q | TDS on Non-Resident Payments | Payments to non-residents (excluding salaries) |
Form 27EQ | Tax Collected at Source (TCS) | TCS on transactions like scrap sales, motor vehicles above ₹10 lakh |
TDS Deposit Due Dates
- 7th of every monthfor TDS deducted in the previous month.
- 30th Aprilfor TDS deducted in March.
TDS Return Filing
Quarter | TDS Return Due Date |
April - June | 31st July |
July - September | 31st October |
October - December | 31st January |
January - March | 31st May |
Penalties for TDS Non-Compliance
Nature of Default | Penalty/Interest |
Late Deduction of TDS | 1% per month |
Late Deposit of TDS | 1.5% per month |
Late Filing of TDS Returns (Sec 234E) | ₹200 per day (up to TDS amount) |
Failure to File Returns (Sec 271H) | ₹10,000 - ₹1,00,000 |
Advantages of TDS
For the Government:
- Ensures a steady revenue stream.
- Minimizes tax evasion.
- Reduces administrative burden.
For Taxpayers:
- Prevents lump sum tax burden.
- Avoids penaltiesfor late tax payments.
- Enables seamless ITR filing & refunds.
For Deductors:
- Ensures legal compliance.
- Strengthens financial discipline.
- Enhances business credibility.
Conclusion
With TDS reforms in Budget 2025, businesses and individuals must ensure compliance to avoid penalties. If you need assistance with TDS filings, deductions, or compliance, consult a Chartered Accountant today!
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